Energizer Resources (TSE:EGZ)(OTCBB:ENZR) revealed Wednesday the results of a sensitivity analysis for its Molo graphite deposit in Madagascar, altering the graphite grade and operating cost estimates to assess the economics of the project further.
Specifically, the aim of the analysis is to see the impact of different graphite sale prices and operating costs on the project's internal rate of return (NYSE:IRR) and net present value projections.
The company said in the statement Wednesday that a key point to note is that both the IRR and net present value are not "very sensitive" to reasonable changes in the underlying assumptions compared to other similar operations.
"The sensitivity analysis utilized conservative baseline graphite pricing and OpEx costs, yet still illustrates the robust nature of the project," said Energizier, citing president and COO, Craig Scherba.
"If the graphite price falls off by 25% and there is a 20% OpEx cost over-run, the project still has very positive IRR and NPV values."
Indeed, if the graphite price falls by 25 percent from the base case price used, to US$1,173 per tonne, and the operating costs increase by 20 percent, there is still a pre-tax 23.7 percent IRR on the project, and a net present value of $104.8 million.
At the base case $1,564 per tonne graphite price, and using an operating cost estimate of $523.50, the pre-tax IRR is 48.2 percent, with a net present value of $420.8 million for a mine with a 20-year life.
Energizer even said Wednesday that it believes the baseline graphite price to be conservative, as it does not reflect optimization of flake size distribution through pilot plant test work.
Similarly, the operating cost estimate used for baseline purposes can stand to be reduced, as it assumes all power for the project will be supplied by containerized diesel power generation and all-road maintenance for the transport corridor to the port will be assumed 100 percent by Energizer. The cost also includes estimates for graphite transportation from the plant to the port and onboard cargo ship, as opposed to just the FOB plant.
The graphite explorer and developer said these costs are expected to decrease with the development of the neighbouring Sakoa coal field projects, which the company expects will allow it to purchase 'over the fence' power from the coal-fired power generation facility. It also expects to see savings due to infrastructure sharing and port development.
"Synergies with the Sakoa Coal Field projects may be realized sooner than initially believed, as there will be coal test shipments to the port of Soalara commencing later this year," the company added in its statement today.
The sensitivity analysis was prepared by South Africa-based Cresco Project Finance, and the results will be included in the preliminary economic technical report update.
A full feasibility study for its Molo graphite deposit is slated for the fourth quarter of this year, with the start of mine construction expected in the second quarter of 2014, and production anticipated in the fourth quarter of 2015.
Energizer late last year unveiled an NI 43-101 resource estimate for Molo, part of its aptly-named Green Giant project. Indicated resources at the Molo deposit total 83.99 million tonnes, grading 6.36% C, above a 2% C cut-off grade, with inferred resources totalling 40.32 million tonnes grading 6.3% C.
The deposit is located in the Tulear region of southern Madagascar, 145 km southeast of the city of Toliara. The company says it is in a sparsely populated, dry savannah grassland area, which has easy access through a network of secondary roads that lead to both the regional capital and port city of Toliara, and to the port of Soalara.
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